14. The stock of Big Joe\'s has a beta of 1.54 and an expected return of 12.80 p

Question

14.

The stock of Big Joe's has a beta of 1.54 and an expected return of 12.80 percent. The risk-free rate of return is 5.3 percent. What is the expected return on the market?

15.66 percent

10.17 percent

8.63 percent

4.64 percent

7.50 percent

16.

The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.60 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 90 percent of its face value. What is the company's pre-tax cost of debt?

7.0 percent

4.6 percent

12.0 percent

3.0 percent

9.2 percent

18.

The Auto Group has 1,000 bonds outstanding that are selling for $820 each. The company also has 8,100 shares of preferred stock at a market price of $55 each. The common stock is priced at $50 a share and there are 27,000 shares outstanding. What is the weight of the preferred stock as it relates to the firm's weighted average cost of capital?

8.52 percent

34.07 percent

51.62 percent

17.03 percent

31.35 percent

Explanation / Answer

1 Expected Return = Rf+Beta(Rm-Rf) 12.8=5.3+1.54(Rm-5.3) 7.5= 1.54Rm-8.162 Rm = 15.662/1.54 Rm = 10.17% The correct answer is 10.17% 3 Bonds 1000 820 820000 Preferred Stock 8100 55 445500 Common Shares 27000 50 1350000 2615500 Weight of Preffered Dtock = 445500/2615500*100= 17.03% The correct answer is 17.03%

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